Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is
A) negative and therefore the good is an inferior good.
B) negative and therefore the good is a normal good.
C) positive and therefore the good is a normal good.
D) positive and therefore the good is an inferior good.

Question

Quizplus · Accepted Answer

Since a 4% increase in income results in a 2% increase in quantity demanded, the income elasticity of demand would be 2%/4% = 0.5, which is positive. Thus, the good is a normal good, meaning that as income increases, the quantity demanded of the good also increases.

Assume That a 4 Percent Increase in Income Results in a 2